Grain Spreads: Weather and Politics

Sean Lusk General Commentary Leave a Comment

What report? Lacking months of data by the USDA could of meant a bigger protracted move in grains today with today’s WASDE report. It was not to be as volatility waned, as the trade realizes that US trade reps are in China early next week to potentially reach or come close to finalizing and agreement ending tariffs between both countries. The market in my view is hyper-sensitive too any progress or not on trade as future prospects for global economic growth may hinge on the outcome. For some grain and livestock contracts, the talks could mean something. For me, corn could have the biggest bull story in 2019. Here is a snippet of today’s report for corn and a trade idea moving forward.

2018/19 corn end stocks were forecast at 1,735 Mil Bu, down 46 Mil Bu from December. The USDA cut feed/residual use by 125 Mil Bu via the smaller US crop and corn use to produce ethanol by 25 Mil Bu. Total US 2018/19 US corn demand is pegged at 14,865 Mil Bu – or some 445 Mil Bu more than production. ** 1st quarter US corn feed use was estimated at 2,289 Mil Bu with Dec 1st stocks at 11,952 Mil Bu, down 604 Mil Bu from last year. These stocks were the lowest in years and raises the need for the 2019 US corn crop to exceed 15,000 Mil Bu. The corn market has no room in its supply profile for China to secure 8-12 MMTs of US corn if a trade deal is agreed to. Corn holds the most bullish fundamental in my view and the market could demand an additional 2-3 Mil of new crop seedings.

Dec 19/Dec 20 Corn Spreads

Dec 19/Dec 20 corn could be a buy here at a 16 to 14 cent carry. Today it settled at 13.6 Dec 20 over. The 19 crop could gain on the 2020 crop if old crop supplies tighten amid the unknowns of what this years crop will yield. I would be a buyer of dips on this spread as it may move higher through planting and growing season. Hedgers should still consider buying this futures spread while considering buying the Dec 390 put and selling 2 Dec 19 490 calls for even money on a small percentage hedge. Call or email me with questions at 888 391 7894 or slusk@walshtrading.com Please join me each Thursday at 3 pm for a free grain and livestock webinar. We discuss supply, demand, weather, and trade ideas. My phone number is 888 391 7894 or email slusk@walshtrading.com

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